Compare car loans and finance options

There are some great car finance options around, but knowing where to get the best deal can be tricky. We compile the latest rates and deals from the major banks, smaller lenders and brokers from across New Zealand to help you pick the right option for you.

Read on to compare car loans, learn how to get the best deal, what to avoid, and more.

What is car finance?

Car finance can work differently depending on the type of loan you take out and what kind of car you’re looking to purchase.

Typically, the following steps apply:

1. You apply for a loan. Once you choose the right car finance option for you, you need to apply. Unsecured loans only require your personal and financial details, but secured loans also need information about the car.
2. The lender approves your loan. Car loan approval can happen on the same day, or it may take up to ten days. You may also receive conditional approval, where the lender tells you how much you are likely to be eligible for, so you can go car shopping knowing your spending limitations.
3. The car is purchased using the funds. Buying a car can happen a few different ways. If you’re buying the car in a private sale, your lender may pay the seller directly or transfer the funds to your bank account for you to pay. If you’re purchasing from a dealership, the lender usually pays them directly. Unsecured loans require you to arrange the payment yourself.

The types of car finance available

There are a wide variety of car finance options out there, these are the most common types you’ll come across.

Secured car loan

With a secured car loan, the loan provider uses the vehicle you buy as security for the loan. The lender has the right to repossess the car if you default on your loan. As this type of loan is less of a risk to the lender, the rates for secured loans are usually lower.

Unsecured car loan

With unsecured car loans, the lender doesn’t use an asset as security for the loan, which means your car won’t be repossessed if you stop making your loan repayments. These loans come with a higher interest rate, but you have more flexibility with the way you use the loan.

Car lease

You can also lease a car for business or personal purposes. With leasing you don’t own the car but make regular lease payments until the end of the agreement. A car lease may give you the option to buy the car at the end of the lease term at a reduced price, or you can choose to give the car back and enter into a new lease agreement for a different vehicle.

How to get the best car finance deal

• Be aware of interest rates in the market

  If you take the time to compare car loans on finder.com.au, you’ll get a strong idea of what interest rates are available from a range of lenders. This gives you plenty of ammunition when it comes to negotiating with your own lender.

• See if you can negotiate a price with the seller

  If you’re keen to stay with your own bank or credit union for your car finance needs, take your interest rate information with you when you make your enquiries. This will encourage the lending officer to see if there is any room to take a few extra points off the interest rate they offer you.

• Take out car dealership finance

  When you apply for a loan through the finance officer at a car dealership, you have lots of room to negotiate on rates. This is because the dealership often receives its loans at discounted rates, leaving it extra room to bump up the rate you pay. That margin between what the dealer pays to the lender and what you pay to the dealer forms their “trail” commission. In other words, every time you make a payment, some of it goes towards paying interest to the lender and some goes to paying commission to the car dealership. Haggle and negotiate on the rates you’re offered through the car dealership. It will usually have around 2% that it can drop from the initial rate that it quoted you.

• Can you get a package deal?

  Some banks will offer a discount on their advertised interest rates if you also have other banking products with them. If you already have a mortgage, a credit card and a transaction account with one bank, ask if it will give you a discount on your car loan if you add that to your package.

Watch out: When the cheapest interest rate isn’t the cheapest car loan

When most people go hunting for vehicle finance, they immediately look for a low-interest-rate car loan and believe they’re getting a great deal. Unfortunately, it is possible for the loan with the cheapest rate to end up costing you more over the term of the loan if you’re not careful.

How the cheapest rate could cost you more:

Consider a car that costs $25,000. One lender is offering a rate of 8% p.a. over five years, and another is offering a rate of 9% p.a. The only difference is the fees. Take a look at how much it could cost you if you opt for the cheapest rate:

In the above example, the interest rate that is higher turns out to be the cheaper option, despite the initial up-front cost.

The car finance approval process explained

Getting car loan approval might seem quick, but there are several stages your application needs to progress through before the lender releases money to the car’s seller.

1. Step one. To start the approval process, you need to fill out and sign an application form, which you can do in person at the bank branch or car dealership. Alternatively, you can fill it out using the lender’s online application form on its website.
2. Step two. Once the loan provider receives your application, a credit officer reviews it. If everything is in order, you should obtain conditional approval almost immediately.
3. Step three. The final approval stage is when the lender may request other documentation to support your application, which includes your identification; payslips or income verification; bank statements and any additional pertinent information.
4. Step four. Once you receive your final approval, the lender asks you to sign the loan documentation, which is your agreement with the bank to repay the amount you’re borrowing over a specified loan term at an agreed interest rate.
5. Step five. The lender funds the loan, which can happen in a few ways. If the loan is secured, the lender usually pays it directly to the person/dealer you’re buying the car from, or the funds are transferred to your bank account. If it’s unsecured, you usually receive the funds directly and are responsible for purchasing the car.

Top car finance tips

Some tips that can help those looking to take out a car loan include:

• Work out how much you can afford to borrow.Before you start looking for finance or searching for the dream car, work out how much you can afford to borrow. This is based on your income and outgoings. Go through your finances thoroughly and check the maximum amount that you can afford by way of monthly repayments.
• Work out what terms you want from the car loan.You should also consider the length of the loan term before you start searching around for a lender or car. The longer the repayment term, the lower the repayments, but the more the loan will cost you overall in interest payments.
• Extra costs.You need to think about additional costs associated with buying a new car. Are these something that you want to work into the car loan, or do you want to pay for them separately? This includes the cost of insurance, which can be quite high, particularly for younger drivers with less experience.

Frequently asked questions

If you still haven’t found the information you’re looking for, check the FAQs below.

• Can I get a car loan if I'm on a work visa?

  Yes, but there may be additional lending criteria you need to meet as a work visa holder, such as the length and type of visa, your income and employment status, and how much deposit you have.

• Can I get approval before I apply?

  Yes. Pre-approval is a great way to work out how much you can comfortably borrow and what your repayments are before you head out car shopping.

• Do I need a deposit for a car loan?

  Some lenders allow you to borrow the entire purchase price of your car, but this depends heavily on the strength of your financial situation and credit history.

• How do I make repayments for my loan?

  Your repayments can be made automatically via direct debit on a weekly, fortnightly or monthly basis with most lenders. A specific amount is debited from your regular transaction account each month to cover your payment.

• Will I be penalised if I make extra payments to my loan?

  This depends entirely on the lender you choose and the type of car loan you want. Some loans charge you an early repayment fee if you make extra repayments while others won’t. It’s always a good idea to check whether this fee applies to your loan before you proceed with the application.

• Does applying for a car loan affect my credit report?

  The enquiries you make for any form of credit are entered onto your credit report as an enquiry with that lender. If the provider declines your application and you submit another application elsewhere, your report shows two enquiries.

• Will I still owe the lender money if they repossess my car?

  If you stop making the car loan repayments, the lender may choose to repossess your car. They sell it in an attempt to recoup some of their money, along with covering any repossession fees. If the sale price of the car doesn’t fully cover those costs or pay off your outstanding loan amount entirely, you may still need to repay the outstanding balance to the bank.

Remember that a car loan can be a significant financial commitment, so exercise diligence and compare a wide range of options before applying.